Pull back curtain on ‘window dressing’
Q: What’s “window dressing”?
A: It’s what some mutualfund managers do to fool most of us.
Fund managers regularly report on their funds’ holdings, typically every three or six months. Because they want to look good and impress existing and potential shareholders, some will sell poor performers they’ve held for a while and buy recent stellar investments. That way, someone perusing their list of holdings as of the end of the quarter might be pleased.
For example, perhaps the Kitten Kaboodle Fund has been invested in some stocks that have plunged or been tied to scandals recently. If so, before the day on which the fund’s holdings will be recorded and later revealed, the managers might sell out of those dogs, snapping up shares of recent market darlings.
That is window dressing. Favoring funds with low turnover ratios (i.e., relatively little trading activity) can thwart window dressers.
Fool’s school: Wisdom from Oracle of Omaha
Superinvestors Warren Buffett and his business partner, Charlie Munger, recently held forth at Berkshire Hathaway’s annual meeting in Omaha, Neb. Paraphrased nuggets:
On figuring out one’s circle of competence: Buffett explained that it requires being realistic and honest about what you really do and don’t know. He knows of many CEOs who don’t know where their circles begin and end. He thinks that most of Berkshire’s managers know when they’re playing in a game they are going to win.
Rose Blumkin, who sold Buffett her Nebraska Furniture Mart business years ago, is a good example. She didn’t take Berkshire Hathaway stock in the sale because she didn’t have a great understanding of it. But she understood real estate and retail and cash.
Munger added that competency is a relative thing, and that what he needs to succeed is to compete against idiots. “And luckily, there’s a large supply.”
On whether they support more prosecutions for misconduct in the 2008 financial crisis: Munger said we’ll never have perfect behavior when there are a lot of people in an environment of easy money, and he suggested that some criminal prosecutions can change behavior a lot. Buffett added that he favors prosecution of people more than prosecution of companies because it changes behavior more. It’s easier to prosecute companies because they will often just settle by writing a check.
On money and happiness: Buffett said that there isn’t a direct relationship between the amount you have to spend and your happiness. He wouldn’t be happier if he had six or eight houses, and he said he’d actually be much less happy. Money makes a difference only up to a point. But once you go far beyond that point, it doesn’t make a difference.
There’s much more to learn about money, investing and life from Buffett. Read his annual letters to shareholders, available at berkshirehathaway.com.
Foolish trivia
I was created in 1930, but some of my businesses were making margarine, soap and soup tablets back in the 1800s. Today, I’m a global giant; more than 2 billion people use my products daily in more than 190 countries. My brands include Lipton, Knorr, Dove, Hellmann’s, Vaseline, Brylcreem, Close Up, TRESemme, Ben & Jerry’s, Omo, Surf, Good Humor, Klondike, Q-tips, Popsicle and Slim-Fast. (I’m slimming down, and sold Wish Bone and Skippy.) Many of my brands have annual sales topping $1.3 billion. I employ more than 170,000, and 42 percent of my managers are women. Who am I? was founded in 1976 by two guys in a garage who dreamed of easy-to-use personal computers for homes and offices. One of them left me for a while and established Pixar (which Disney now owns). I was written off by many in the mid-1990s, but after my founder’s return, I launched more products, some of which created markets. My music-related revenue is on track to eclipse that of my laptops soon, and phones generate the bulk of my sales. My stock went public in 1980, and it has grown more than 180-fold since then. Who am I?
Answer: Apple
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